If you are looking to obtain capital to start, grow or maintain your small business, the Small Business Administration, SBA , can help with a variety of loan programs. Recently they proposed two significant changes to their flagship 7(a) and 504 loan programs. Here’s a snapshot of those proposed changes:
SBA’s 7(a) & 504 Loan Program at a Glance
The SBA’s 7(a) loan program is designed to help small businesses finance a variety of business initiatives, but there are some restrictions on how you can use the funds.
The SBA's 504 loan program is designed to help businesses buy major fixed assets like real estate or equipment.
Elimination of the Personal Resource Test
The first proposed change is the elimination of the “Personal Resource Test”. Present rules require any owner of 20% or more of the business to invest a certain amount of their personal liquidity into the business. In a business where there are multiple owners, the personal resources of each owner (or family) can sometimes create friction between owners. The elimination of this rule would alleviate this issue. Some have felt the formula of testing for this rule was arbitrary. Creating more opportunity for financing will potentially be the result of this change.
Changing the 9-Month Look Back Period
Another rule proposed to change is the 9-month look back period for 504 lending. If a business owner invested funds in support of a new facility for the use of the business, the SBA would declare funds invested more than 9-months old ineligible as part of the overall project. Many projects had to be put on hold during the recession. Add in the lower commercial real estate valuations and it’s a double hit to the business owner. This proposed rule change is welcomed by the entire 504 industry. The program is a proven job and growth creator.
Waiver of SBA Guarantee Fees
Another proposal is the waiver of SBA guarantee fees for loans less than $150,000. For smaller credit needs under the “SBAExpress” and the newer “Small Loan Advantage” loan program, this could save small business owners over $2,500 in closing costs. This is another welcomed change for smaller businesses in accessing capital. Clearly the SBA has been listening to it’s constituents in the banking and small business community in making changes to antiquated rules and in making it less expensive to capitalize businesses.
- To learn more about these proposed changes, click here.
If you have any questions about SBA loans for your small business, let us know in the comments below.